The domestic fund market is still struggling to cope with the regulatory measures taken over the last one year. Fund houses say the industry is in a bad shape due to rising costs and declining profitability. H N Sinor, chief executive officer, Association of Mutual Funds in India (Amfi), tells Chandan Kishore Kant the industry is in a quagmire and may take six-eight months to settle down. Excerpts:
The regulator has been continuously tightening the noose on the domestic mutual fund industry. How are things shaping up for the industry now?
One needs to look at the successive measures taken by the regulator that were required to bring some order in the industry. The regulator perceived that what was happening was not right and something should be done about it. I am talking purely about retail. We had 44.8 million folios, which have now come down to 43.4 million. This shows we have lost 1.4 million folios in the last one year, which makes it a loss of roughly 100,000 folios every month.
How has this affected inflows in the retail segment?
The inflows, which used to be Rs 4,000-6,000 crore a month, have now slipped to Rs 2,000-3,000 crore. In contrast, the outflow was larger. In the last 12 months, there were positive inflows in only three months.
Are you suggesting that the industry has not yet come out of the impact of the entry load ban?
Whenever any big change happens, the system is shaken up. I look at the continuous outflow from the equity segment as an adjustment. I believe a gradual process would have been better. It came too quickly.
The industry is in somewhat of a quagmire right now, still trying to adjust to the changes. I am not unduly concerned about the industry closing down. It’s a transition from one phase to another, with a better system in place. We may need another six-eight months to absorb the changes.
What issues should the industry address first?
First of all, the industry should come together and speak in one voice. At present, we are a little fragmented. We do not reach consensus on many issues. Sometimes it may hurt one player, but a general agreement is good for the industry. We need to harmonise thoughts. Only after proving our credibility can we can work out a roadmap to go ahead and approach the regulator.
Do fund houses want entry load back?
Some members still talk about the revival of entry load. But it is not going to happen. The industry must understand that we need to change our business model to survive in the system.
More From This Section
Do you see smaller fund houses getting squeezed?
This is a pass-through business. Not all fund houses have gained critical size in terms of assets. It is not that small players will not survive. There can be one niche player and there can be one good volume player. Even smaller players are doing extremely well. None of the guidelines have seriously affected the smaller players. They have kept their operations small, with limited schemes, and are providing clients limited but high-quality service.
Is publishing monthly data a trouble for the industry?
The numbers we put out distort the picture to some extent. They are not a true reflection. It is a mistake to talk about assets under management as it depends on the market. I believe retail data depict the right picture. Institutional money is the wholesale money that will come and go.
